Hacker News Reader

Comment by agildehaus | Hacker News Reader

I just started to have enough money for a decent downpayment on a house when all this rate hike started. Now I'm basically priced out.

View on HN

This affects mortgage rates, but not housing prices. If anything, housing prices should decrease a bit as rates go up, since people tend to buy based on monthly payment which is house price + rate.

Therefore, your down payment should be just as effective as it was before, particularly if it's enough to pay for much of the house and keep your monthly payment lower.

This should be happening, but prices do not seem to be falling in-line with what we would expect. I have no answer as to why this is.

Be more patient. Watch Canada and Australia.

There is a lag.

It just takes time. Even in 2008 prices took a few years to bottom out.

Homeowners are just reluctant to lower, so they are happy to sit with fewer sales and higher prices. It will go down, it is just sticky because nobody wants to admit their home is worth less.

It takes years for existing sellers to wake up to market shifts, unless they’re desperate is why.

If it’s a nicer area, many can ride it out through an entire bust cycle.

Most folks can get 30 yr fixed rates, so any area where most owners have stable employment and/or strong capital reserves, can cruise with zero movement for years if conditions aren’t favorable, barring estate sales, forced sales from divorces, etc.

Your second sentence is the position we're in. We were very fortunate to buy a house in a nice area a year ago. Right at the peak, but it was a fixer-upper from a friend, so we got a good deal and skipped a lot of fees/commissions. Even with what we've put in to fix it up, we should still be above water post-dip.

And that sweet, sweet 2.375% mortgage...

It's a good place to be in! Pretty much only secondary to the folks who did it a couple cycles ago and paid everything off, and managed to not explode things/screw it up.

Enjoy, and hopefully no one comes around to give you grief about it.

Thank you! We're incredibly fortunate, and did everything fully permitted and whatnot to try and avoid all those wrinkles. Fingers crossed it all goes well.

There hasn't been enough time. Mortgage rates have only been high (-ish, not really that high historically) for a matter of months. Home sales are down quite a bit, so people are now sitting on houses that are priced at old prices, but are slow to sell because buyers consider it "too much". The sellers will be forced to cut prices to make sales, but that takes a while because it's emotional.

I think partially because housing is inelastic, the demand outweighs the supply. People already in homes would rather not move than sell at a loss, especially those who have a low mortgage rate from the past few years locked in. New homes being built were delayed due to COVID(and now maybe due to interest rates?).

So even with rising rates its moreso a matter of staying stagnant rather than rising more, at least up to a certain point.

At least thats how I've read it explained.

There's a lag in the index, but in August (most recent data available) housing prices were down 0.7% month over month, and 0.6% the month before https://www.fhfa.gov/AboutUs/Reports/Pages/US-House-Price-In....

But, as others have pointed out, housing prices are sticky for a variety of reasons.

Housing prices are very sticky in the downward direction. Sellers really hate taking a hit on their asking price, and they will just stay in the house rather than sell for a long time. It will take years of elevated interest rates before prices start to come down significantly.

Builders are holding off building more housing because interest rates going high means they get less. The lowered prices actually reduce the stock, making housing even less available.

https://www.businessinsider.com/housing-market-outlook-downt...

This is a pretty blanket statement. That same down payment will not be effective at all. Current interest rates have definitely impacted housing prices but its not significant enough to make up for the difference in monthly payment. Think of it this way:

Scenario 0: 500k house, 30yr/3% interest rate, 100k down (20% standard) = 400k total loan amount and 1,686 monthly payment

Scenario 1: 400k house, 30yr/7% interest rate, 100k down (let's say you still have that cash and put it all towards down payment) = 300k total loan amount and 1,996 monthly payment.

This is assuming in your housing market prices have cooled by 20%, I'm not seeing drops like that in my market. Your monthly payment just increased $300.

Scenario 2: 400k house, 20% down, 30yr/7% = 320k loan, $2129 payment. You save $20k cash, which covers your increase in payment for ~4 years. By then maybe you can refinance back to Scenario 0.

Back down to 3% that’s a stretch, historical rates average 5%+. But you’re right, however no one can predict the future.

Home prices will fall materially once people are forced to sell. That won't happen until broad layoffs occur.

If you have good credit, you'd be surprised how low PMI can get when you put less than 20% down. I wish I had learned it sooner. Saved 6 figures for a down payment only to find out that my PMI was only $103/mo on a $600k mortgage. Ended up doing 5% down instead and threw the rest of the cash into immediate home improvements and the market.

Disclaimer: I did get in when rates were in the low 3s. No clue what PMI is like nowadays or if it changes with the current rate environment.

that is the exact purpose of the action,

reduce demand

it does suck being on the receiving end - I do sympathise - and I am simply making an observation

(Not sure if this is good advice, but...) remember that you can always refinance at a lower rate when the rates come back down.

It's obviously still not advisable to buy a house if you can't afford the monthly payments, but remembering that you can always refinance in a couple years when the rates normalize might help if you have FOMO from the super low rates of the past few years.

Same here. When I started my search last year, while I could afford the mortgage payments, I kept getting outbid on everything I could find within my price range ($550,000). This year I'm priced out due to the doubling of interest rates. Home prices in the area I'm looking at (the Monterey Bay Area and some of the Central Valley exurbs of the Bay Area) have fallen a little bit since this summer, but they are still dramatically higher (roughly 30-50%) than they were in 2020 when the pandemic started. My performance-based salary increases haven't kept up with inflation. Thus I'm stuck renting my one-bedroom apartment longer.

I don't understand this fear. I was in same boat over 10 years ago, when the household bubble popped, so did prices (over a few years period). Then my downpayment was like 30-40% of the home costs.

There are always people who want or need to sell, even if people who bought high hold on to their homes.

A few months from now will be the best time to buy. You can renegotiate the terms of the loan, but you can never renegotiate the price you pay!!!!

The damage in the housing market will play out over several years. A few months from now will still be far too early into the damage. Wait longer. The hit to the housing market will run on a longer delay than that from the Fed's hikes, historically it always does.

Don't worry. You wouldn't want to be the bag holder in an economy where there are wholesale layoffs.

Reply on news.ycombinator.com